The
essence of American interest rate liberalization is the liberalization and
marketization of bank deposit interest rate. Different from the current
interest rate liberalization reform in China's financial industry, the lending
rate of American Banks has been "unregulated" or liberalized. In
fact, the American financial industry experienced several other landmark
changes in the 1980s, such as the breakthrough in the cross-state operation of
Banks and the breakthrough in the cross-industry operation structure of
commercial Banks.

In
the late 1970s and 1980s, the interest rate liberalization of American banking
industry was actually the liberalization of the deposit rate of American commercial
Banks. To look at from the perspective of history, when the interest rate
marketization process is due to the United States financial disintermediation
and 70-80 - s of the 20th century after ultra high inflation, commercial
banking counter disintermediation in the struggle for survival, intense
wrangling with competitors and gain financial regulators to cooperate, and the
result of basic abolishing rules "Q".

In
the process of interest rate liberalization in the United States, the
legislative and financial regulators play a key role. First, they began by
setting a timetable for the completion of interest rate liberalization.
Secondly, they assist the banking industry in the process of
anti-disintermediation product innovation. Thirdly, regulators and the us
Treasury Department have laid an important foundation and benchmark system for
the market-oriented yield curve of Treasury bonds for the reasonable pricing of
interest rates after marketization.

In
addition to the environment of financial disintermediation and interest rate
liberalization, the macro-economic environment of the United States also faced
the challenge of high inflation and economic cycle. Under such a complex and
severe environment, American Banks, especially the big Banks, conducted
all-round model transformation. The successful Banks have different
transformation modes, among which, due to the proper coordination of the
transformation to the road and corporate culture, Morgan finally
comprehensively surpassed the competitors such as citigroup and chase, and
became the only bank in the history of American banking to obtain the AAA
rating of standard & poor's.

In
the 1980s, due to their different conditions, American commercial Banks adopted
different strategies to cope with the complex external operating environment,
including the epoch-making reform of the financial system of the liberalization
of deposit interest rate, and there were both successful and unsuccessful
cases.

Successful
strategies emerged mainly among the best Banks of the time. In the 1980s, the
famous American investment bank KBW established a so-called "outstanding
bank index" for the American banking industry. Banks that were then
included in the KBW index had certain traits that allowed them to ride out the
ups and downs of the economic cycle more smoothly. KBM selected 200 out of all
the Banks, and the first six of them were the best of the American banking
industry for the next 30 years, the old jpmorgan, wachovia, Cleveland national
bank, NBD, sun trust, PNC financial. These Banks adopted the following
strategies to cope with the interest rate liberalization environment: paying
attention to credit culture and asset quality; Maintaining a competitive cost
structure; Centralize the advantage and win the fee income in the
characteristic market of your specialty, such as trust business, securities
processing, credit card and debit card processing; Firmly grasping new
technology trends to compete with non-traditional deposit institutions; Pay
close attention to the source of deposits and so on.

But
at the same time, a number of Banks have adopted some ineffective strategies,
such as blindly expanding through acquisitions. The second is credit or
expansion in unfamiliar sectors, such as energy sector credit or the acquisition
of non-bank companies they are unfamiliar with at home and abroad. In addition
to the overall performance of the above Banks, there are a number of different
areas of the performance of the bank.

At
that time, it was recognized by the industry as a bank that successfully
transformed in some aspects. In terms of portfolio transformation, JP Morgan
was relatively successful in the transformation of its business strategic
portfolio. Its strategic transformation focused on investment Banks serving
large multinational corporations and their related commercial banking
businesses. Northern trust focuses its portfolio on private, trust and
corporate services. Bank One and Norwest have been very successful in their
strategy of transforming retail and micro-enterprise services through mergers
and acquisitions. Fifth Third, Wells Fargo and PNC have all been successful in
reasonably controlling costs. Core State, Bay Banks and Wells Fargo are boldly
high-tech in their service channels and very effective. In the model of
cross-selling or customer relationship bank, Norwest and Morgan are the best in
private and public respectively. Wachovia, NBD and social bank manage credit
risk pricing and risk control effectively.

Firstly,
the interest rate liberalization of American banking industry is totally
different from that of Chinese banking industry. Although the interest rate
liberalization in the United States is the deposit rate liberalization, the
lending rate of its banking industry has already been deregulated and even
marketized. China's loans and deposits face both liberalization and
marketization in the first place.

So
the implication here is that the core of marketization is not just the
government simply liberalizing interest rates. More importantly, when interest
rates are liberalised, how should Banks' assets and liabilities be properly
priced in accordance with the market-based mechanism? Before interest rate
liberalization, we believe that China needs a market-oriented interest rate
system, and the market-oriented Treasury bond market should be the starting
point and core of all this. In addition, when promoting the process of interest
rate liberalization, specific schedules, regulations and measures should be set
up on the institutional arrangement, such as strengthening the important role
of the Treasury bond market in interest rate pricing and so on.

Secondly,
financial disintermediation is an unavoidable and structural problem in the
development of global financial industry. Before the implementation of interest
rate liberalization, the us and Chinese Banks encountered severe challenges of
financial disintermediation, but their rivals were different. Due to the
influence of regulation and other factors, the competitors in the process of
disintermediation will be quite different. At that time, the strongest
competitor in the disintermediation of American banking industry was the
securities industry. As mentioned earlier, the us securities industry also has
an attractive insurance regime as does the banking industry. In contrast, the
competitors in China's disintermediation environment are the capital market,
trust industry and Internet finance, which is still relatively underdeveloped
but still immature and free of deposit insurance. Faced with this gap of power,
the us banking industry was aided by regulators in anti-disintermediation, a
situation that seems unlikely in China in the near future. Therefore, we
believe that the interest rate liberalization and marketization process of
China's banking industry will have a completely different deductive process
than that of the United States. In other words, China's Banks will face greater
challenges as they transform themselves, not regulators. More importantly, the
mixed operation of China's financial industry is not comparable to that of the
us in the era of interest rate liberalization. The transformation of fee income
structure of Chinese Banks will be much slower than that of American Banks at
that time. Therefore, Chinese Banks should have enough psychological preparation.

Thirdly,
commercial banking, especially large Banks, needs rapid transformation. The
financial disintermediation and subsequent deposit interest rate liberalization
in the United States in the 1980s and the drastic fluctuations of the macroeconomic
cycle at that time prompted the big American Banks to reposition and think
about their income structure and global layout. While the major U.S. Banks have
all made the transition, the truly successful ones are not in the majority.
Banks should choose the most suitable transformation mode according to their
comparative competitive advantages. However, the essence of JP Morgan's
transformation -- to find a balanced strategy, carefully maintain the most
suitable customer group, and closely cooperate and support it with measures on
culture, salary, institution setting and personnel reform, plus active asset
and liability management, etc., can be used as reference for China's banking
transformation.

To
sum up, for China's financial industry which aims at market, what we expect to
see is that the entire financial industry will continue to develop by resolving
various contradictions under the supervision of regulators under the wrestling
of various forces of disintermediation and anti-disintermediation. We expect to
see further liberalization of interest rates and further improvement in the
marketization process. At the same time, with the deepening of financial
disintermediation, we hope that in the near future we will see the deregulation
of cross-industry operations. Wise Banks should prepare for a new
transformation in this area as soon as possible to be the real winners in the
future.